The Formation of Market-Level Expectations and Its Covariates

A formal model of market-level expectations is developed and used to identify testable hypotheses. The empirical findings indicate that market-level expectations are more adaptive in nature than previously thought. The study also provides the first systematic investigation of cross-industry variation in the formation of marketlevel expectations. Several factors, including advertising, word-of-mouth, market growth, and purchase frequency, are found to have a significant moderating influence on the adaptation rate. Finally, we find that market-level expectations adjust faster when perceived quality declines, suggesting that negativity biases manifest at a macrolevel—a phenomenon that has not been previously observed.